Question

Tech Solutions is a consulting firm that uses a job-order costing system. Its direct materials consist of hardware and software that it purchases and installs on behalf of its clients. The firm’s direct labor includes salaries of consultants that work at the client’s job site, and its overhead consists of costs such as depreciation, utilities, and insurance related to the office headquarters as well as the office supplies that are consumed serving clients.

Tech Solutions computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 72,500 direct labor-hours would be required for the period’s estimated level of client service. The company also estimated $652,500 of fixed overhead cost for the coming period and variable overhead of $0.50 per direct labor-hour. The firm’s actual overhead cost for the year was $671,800 and its actual total direct labor was 77,550 hours.
Required:
1. Compute the predetermined overhead rate.
2. During the year, Tech Solutions started and completed the Xavier Company engagement. The following information was available with respect to this job:
Direct materials $ 43,500
Direct labor cost $ 23,400
Direct labor hours worked 300
Compute the total job cost for the Xavier Company engagement.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
Compute the predetermined overhead rate. (Round your answer to 2 decimal places.)
Predetermined overhead rate per DLH
Compute the total job cost for the Xavier Company engagement. (Round your intermediate calculations to 2 decimal places.)
Direct materials
Direct labor
Overhead applied
Total manufacturing cost

Answer 1

1. $9.50 per Direct labor hour

2. $69,750

Step-by-step explanation:

1. Computation for the predetermined overhead rate

First step is to calculate the Total Estimated overhead cost

Variable overhead cost $36,250

(72,500 Direct labor hours *$ 0.50 )

Add Fixed overhead cost $652,500

Total Estimated overhead cost $688,750

Now let calculate the predetermined overhead rate

Using this formula

Predetermined overhead rate = Total estimated overhead cost / Total estimated direct labor hours

Let plug in the formula

Predetermined overhead rate = $688,750 / 72,500

Predetermined overhead rate = $9.50 per Direct labor hour

Therefore Predetermined overhead rate will be $9.50 per Direct labor hour

2. Computation for the total job cost for the Xavier company Engagement

Direct Materials $43,500

Direct Labor $ 23,400

Overhead applied $2,850

(300 Direct labor * $9.50 )

Total Manufacturing cost $69,750

Therefore total job cost for the Xavier Company engagement will be $69,750